Future of US wireless hinges on NextWave court case

The US Supreme Court heard arguments yesterday in a case involving spectrum ownership that has implications for future sales and...

The US Supreme Court heard arguments yesterday in a case involving spectrum ownership that has implications for future sales and treatment of the valuable licences that telecommunications companies need to offer new wireless services.

The case between the US Federal Communications Commission (FCC) and NextWave Telecom goes back to 1996, when NextWave's personal communications services subsidiary bid $4.74bn (£3bn) for 63 wireless spectrum licences during an FCC auction. NextWave paid only a 10% down payment on the bid before filing for bankruptcy protection in 1998.

The FCC subsequently reauctioned the licences for nearly $16bn (£10.3bn) to companies such as Verizon Wireless and T-Mobile USA (formerly VoiceStream Wireless), but an appeals court later nullified the sale and returned the licences to NextWave.

Arguments before the Supreme Court centred on a clash between US bankruptcy law and public spectrum auctions, which date back to 1993 when the US Congress told the FCC to develop a system of bidding to promote a number of objectives, including the rapid deployment of new technologies.

NextWave was formed in 1995 to provide high-speed wireless Internet access and voice communications services to consumer and business markets.

The case is important to the mobile industry because the outcome will affect the build-out of wireless networks in the US, said Kimberly Kuo, a spokeswoman for the Cellular Telecommunications & Internet Association in the US.

The complex and drawn-out case has put a "stranglehold" on Verizon Wireless, T-Mobile USA and the other bidders, which must continue to hold large lines of credit to secure the bids that they made on the spectrum licences, Kuo said. The CTIA has been lobbying the FCC to grant the carriers full release from the commission's claims against the bidders while the Supreme Court decides the case.

"There's $16bn worth of work - network upgrades, more cell sites, more data services - all those things can't be done because of NextWave," Kuo said.

Lawyers for NextWave, which won its claim in the US Court of Appeals in June 2001, argued yesterday that the FCC violated bankruptcy law when it terminated the licences bought by NextWave solely because of non-payment.

This is important because under US bankruptcy law, a government agency is not allowed to "discriminate" against anyone who files for bankruptcy by revoking a licence they obtained from the government except in cases involving certain farm programs.

In supporting its decision to cancel the licences the FCC has never identified any grounds other than non-payment, Donald Verrilli, a lawyer for NextWave, told the court.

"Now the FCC says it had a regulatory purpose for cancelling the licences," Verrilli said. "The licence cancellation was automatic upon non-payment, and it was [done] for no other reason."

Verrilli also cited the FCC's January 2000 announcement that the licences had been cancelled because of non-payment.

Lawyers representing the FCC, which appealed the circuit court decision in August 2001, argued that since a spectrum licence is not property, but a right to use the airwaves, it should not be protected by bankruptcy law.

Justice Antonin Scalia said the only reason he could see that the licence was terminated was because of non-payment, and that every regulatory body that cancels a licence could find a regulatory reason for doing so.

The court's decision to hear a business-regulation case is significant in itself, said Roger Golden, a partner in the law firm Fenwick & West.

"They understand the status of the communications business, including the wireless component, and the wireless industry has been doing a sufficient lobbying job," Golden said.

Some comments made by the justices suggested that the court understands that the wireless industry is suffering, and that there's an overall desire within the government and among major players in the industry to kick start it, Golden said.

However, it seemed that the justices would rather see the parties settle the case, so that they were not forced to pit US bankruptcy law against federal communications law and write a ruling based on obscure legal matters.

"Why don't you settle the case today - if they [NextWave] say they can pay?" Justice John Paul Stevens asked FCC lawyer Paul Clement.

NextWave's pending reorganisation plan proposes a "cure" by making full payment to the FCC, but Clement told Stevens the company's opportunity to "cure" has passed, adding that if there were a settlement now, it would draw a challenge from the lower courts.

Clement also argued that the FCC's regulatory role involved the public interest in the practical use of the airwaves, and other companies were waiting in the wings to provide personal communications services. However, Justice David Souter rebutted this, saying it appeared the FCC's decisions were motivated by economics, not public interest.

In a statement NextWave said it presented strong legal arguments that the US Court of Appeals ruled correctly last year in holding that US bankruptcy law barred the FCC from cancelling spectrum licences the company held while successfully reorganising its business affairs.

The statement quotes Michael Wack, a senior vice-president at NextWave, as saying the company believes its arguments were presented to the court "very effectively".

Read more on IT legislation and regulation